Physical and Digital Trading: Metals

Presented By:

February 10, 2021 | ISRI.ORG ISRI Presentation

Physical and Digital Trading: Metals

1

ObjectivesKey

Hedging technology is available and cost effective for recyclers.

February 10, 2021 | ISRI.ORG ISRI Presentation 2

Futures and options market is growing.

Hedging inventory can have a positive impact on cash flow.

Lock in your risk/profit with hedging.

Scott A. Pollan

ISRI Presentation 3February 10, 2021 | ISRI.ORG

• Math + Chemistry• Geology • Metallurgy• Metals Trading • Cash Flow• Corporate Architecture

TIME

Founder and CEO:

Intern: *Series Exams

Brief History of Hedging• (clay + messengers) (chalk board + telegraph) (open cry pit + telephone)

Today, [virtual exchange + digital messaging]

• Chicago Board of Trade – opened to mitigate risk, 1848

A group of farmers got together because they were exposed to price risk, and worked together to create the open format of modern futures contracts.

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21st century:• Automated hedging – inventory management combined with hedging. • Automated pricing – instantaneous pricing, algorithmic programming.• Single unit hedging – 20st Steel, 1lb Copper, 1oz Au, Ag, Pt, Pd, etc.• Cloud operations – IOS/Android mobile device access.

*Stats from CME Group, Tornado BullionFebruary 10, 2021 | ISRI.ORG

Vocabulary

• Long futures position (buy) – hedger benefits from price rise.

• Short futures position (sell) – hedger benefits from price fall.

• Put option – buying the right to sell at a strike price.

• Call option – buying the right to buy at a strike price.

• Margin – a good faith deposit.

• Basis – the difference between cash price and futures price. (+-)

5February 10, 2021 | ISRI.ORG

Hedge example #1 (simplified)

1. Customer pulls into the scrap yard with 20,000lb of #1 bare bright.

2. Yard operator prices the scrap

3. Customer and yard agree on price, yard is now long physical copper.

4. Yard contacts hedging broker, places a futures contract opposite the yard position. (buying metal -> selling futures contract, locked-in profit margin)

5. Yard sells metal to consumer, then lifts short futures position.

6February 10, 2021 | ISRI.ORG

ISRI Presentation 7

Participant Poll

February 10, 2021 | ISRI.ORG

Why should I care?



*Stats from ISRI, London Metals Exchange, CME Group, S&P Global Platts

Non-ferrous yards

All industries

E-scrap

Auto yards

Ferrous yards

Municipal

Do you trade any of these?


Facts and Figures: Annual Combined Volume

*Stats from Futures Industry Association

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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Annual Futures and Options Volume


Facts and Figures: Global Volume by Type and Region


Type Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change

Futures 25,545,752,860 6,288,109,571 32.7% 246,092,274 -2,056,130 -0.8%

Options 21,221,739,033 5,987,439,641 39.3% 741,167,934 89,014,447 13.6%

Total 46,767,491,893 12,275,549,212 35.6% 987,260,208 86,958,317 9.7%

Region Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change

Asia-Pacific 20,147,147,117 5,643,976,050 38.9% 86,238,477 6,525,123 8.2%

North America 12,847,150,905 2,581,660,231 25.1% 515,930,701 62,829,788 13.9%

Latin America 6,432,591,785 2,333,686,275 56.9% 148,247,914 14,468,712 10.8%

Europe 5,601,015,233 567,407,062 11.3% 209,277,525 -10,693,719 -4.9%

Other 1,739,586,853 1,148,819,594 194.5% 27,565,591 13,828,413 100.7%

Total 46,767,491,893 12,275,549,212 35.6% 987,260,208 86,958,317 9.7%


Facts and Figures: Global Volume by Category


Category Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change

Equity Index 18,609,021,646 6,148,133,308 49.3% 223,615,160 12,646,902 6.0%

Individual Equity 9,897,318,982 3,798,106,253 62.3% 452,612,326 106,956,490 30.9%

Currency 4,523,688,389 585,091,682 14.9% 33,036,840 8,621,006 35.3%

Interest Rates 4,151,838,110 -620,147,711 -13.0% 176,564,030 -42,910,645 -19.6%

Energy 3,152,479,136 610,131,118 24.0% 57,069,053 -2,744,988 -4.6%

Agriculture 2,569,466,044 801,746,687 45.4% 22,934,186 542,669 2.4%

Other 1,447,264,077 558,095,407 62.8% 7,316,299 3,356,807 84.8%

Non-Precious Metals 1,433,275,953 -6,454,691 -0.4% 8,541,312 -173,299 -2.0%

Precious Metals 983,139,556 400,847,159 68.8% 5,571,002 663,375 13.5%

Total 46,767,491,893 12,275,549,212 35.6% 987,260,208 86,958,317 9.7%


Market Growth: The “Other” category

Rank Contract Jan-Dec 2020 Vol Vol % Change 2020 Dec OI OI % Change

1 Methanol (MA) Futures, Zhengzhou Commodity Exchange 344,876,192 30.1% 1,043,366 18.9%

2 PTA Futures, Zhengzhou Commodity Exchange 322,078,663 3.1% 3,105,291 237.9%

3 Flat Glass Futures, Zhengzhou Commodity Exchange 185,258,846 499.2% 479,325 151.1%

4 Polypropylene Futures, Dalian Commodity Exchange 173,374,543 85.0% 300,284 -14.0%

5 Linear Low Density Polyethylene Futures, Dalian Commodity Exchange 95,802,284 51.0% 264,848 -36.6%

6 Ethylene Glycol Futures, Dalian Commodity Exchange 83,320,391 12.4% 272,023 29.3%

7 Soda Ash (SA) Futures, Zhengzhou Commodity Exchange 68,406,084 4271.5% 203,710 376.2%

8 Polyvinyl Chloride (PVC) Futures, Dalian Commodity Exchange 58,472,901 73.0% 410,043 56.2%

9 Ethenylbenzene Futures, Dalian Commodity Exchange 52,440,684 1224.7% 101,602 17.8%

10 Urea (UR) Futures, Zhengzhou Commodity Exchange 16,646,171 254.7% 55,721 -3.7%

11 Polyester Staple Fiber (PF) Futures, Zhengzhou Commodity Exchange 16,413,948 n/a 114,127 n/a

12 PTA Options, Zhengzhou Commodity Exchange 11,788,268 5984.9% 320,099 636.3%

13 Methanol (MA) Options, Zhengzhou Commodity Exchange 10,163,945 5828.4% 130,753 288.7%

14 Polypropylene Options, Dalian Commodity Exchange 1,598,980 n/a 32,257 n/a

15 Polyvinyl Chloride (PVC) Options, Dalian Commodity Exchange 1,338,451 n/a 49,780 n/a

16 Fibre Board Futures, Dalian Commodity Exchange 1,033,613 -11.8% 848 -93.4%

17 Forward Freight Agreement Futures, Singapore Exchange 958,698 19.6% 127,768 21.2%

18 Linear Low Density Polyethylene Options, Dalian Commodity Exchange 924,492 n/a 27,764 n/a

19 DJ US Real Estate Futures, Chicago Board of Trade 871,932 37.3% 29,253 -24.4%

20 S&P GSCI Excess Return Futures, Chicago Mercantile Exchange 378,879 -0.1% 46,315 41.9%



Facts and Figures: Top 5 Exchanges by Volume


Rank Exchange Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change

1 National Stock Exchange of India 8,850,473,823 2,873,254,046 48.1% 13,940,567 4,409,626 46.3%

2 B3 6,307,562,139 2,426,937,856 62.5% 143,732,530 11,439,240 8.6%

3 CME Group 4,820,589,858 -9,455,511 -0.2% 81,940,409 -31,398,383 -27.7%

Chicago Mercant ile Exchange 2,386,096,294 188,906,463 8.6% 42,963,522 -24,527,063 -36.3%

Chicago Board of Trade 1,651,840,795 -214,280,864 -11.5% 23,611,441 -4,979,772 -17.4%

New York Mercant ile Exchange 610,984,409 5,484,319 0.9% 13,225,581 -1,171,247 -8.1%

Commodity Exchange (COMEX) 171,668,360 10,434,571 6.5% 2,139,865 -720,301 -25.2%

4 Intercontinental Exchange 2,788,944,012 532,181,481 23.6% 73,688,383 35,258 0.0%

ICE Futures Europe 1,124,764,380 -1,750,717 -0.2% 43,511,042 -2,541,398 -5.5%

NYSE Arca 1711,701,208 286,749,466 67.5% n/a n/a n/a

NYSE Amex 1578,952,684 204,613,236 54.7% n/a n/a n/a

ICE Futures U.S. 371,506,254 41,917,681 12.7% 30,177,315 2,576,800 9.3%

ICE Futures Singapore 2,019,486 651,815 47.7% 26 -144 -84.7%

5 Nasdaq 2,660,595,514 875,254,310 49.0% 5,027,300 -3,953,484 -44.0%

Nasdaq PHLX 1888,987,070 186,010,024 26.5% n/a n/a n/a

Nasdaq Opt ions Market 1688,942,003 298,934,631 76.6% n/a n/a n/a

Internat ional Securit ies Exchange 1545,827,621 147,495,911 37.0% n/a n/a n/a

Internat ional Securit ies Exchange Gemini 1 392,674,146 208,037,195 112.7% n/a n/a n/a

Nasdaq Exchanges Nordic Markets 76,534,988 -2,717,652 -3.4% 4,811,386 -460,630 -8.7%

Internat ional Securit ies Exchange Mercury 152,111,029 41,402,051 386.6% n/a n/a n/a

Nasdaq Boston 114,846,436 3,782,790 34.2% n/a n/a n/a

Nasdaq Commodit ies 672,221 129,663 23.9% 215,914 20,362 10.4%

Nasdaq NFX 2- -7,820,303 -100.0% - -3,513,216 -100.0%


New Technology for Recyclers: Internet of Things

Live-stream pricing

Integration of scales, trucks, inventory management software and traders

Dispatch optimization – bin/trailer/vendor tracking

Custom software for recycling industry solutions

Blockchain and the supply chain


Bring it all together - What does this mean?

Real-time dissemination of price information to teams

Consolidation of inventory management

Integrated inventory management & hedging solutions

Smart phone access

Pound for pound hedge, collateralized assets


Citations (informal)

• https://www.fia.org/data-resources (Slide 9, 10, 11, 12, 14, and 15)

• https://www.lme.com/Metals (Slide 14)

• https://www.cmegroup.com/markets/metals.html (Slide 4 and 14)

• https://tornadobullion.com/index.php/home/ (Slide 4)

• https://www.isri.org/docs/default-source/commodities/overall-industry-fact-sheet_2018.pdf?sfvrsn=18 (Slide 14)

• https://www.spglobal.com/en/ (Slide 14)

• https://www.icrg.org/sites/default/files/oec/pdfs/ncrg_fact_sheet_gambling_disorders.pdf (Slide 19)

https://www.fia.org/data-resources

https://www.lme.com/Metals

https://www.cmegroup.com/markets/metals.html

https://tornadobullion.com/index.php/home/

https://www.isri.org/docs/default-source/commodities/overall-industry-fact-sheet_2018.pdf?sfvrsn=18

https://www.spglobal.com/en/

https://www.icrg.org/sites/default/files/oec/pdfs/ncrg_fact_sheet_gambling_disorders.pdf


Next Month..

• Substance Abuse and Mental Health Services Administration(.gov)

1 (800) 622-HELP (4357) | *Open 24/7

• March – Problem Gambling Awareness Month

• ~1% of adult Americans have a Severe gambling problem.*

• 6-9% of young adults experience problems related to gambling.*

Addiction and Mental Health Awareness

*Stats from International Center for Responsible Gambling


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Physical and Digital Trading: Metals